Individual investors have always had a soft spot for cheap stocks to buy, but get scared away because traditional Wall Street dogma would have you believe that these stocks are too speculative and dangerous for most individuals.
But cheap stocks can be among the best stocks to buy because they bring several advantages to a portfolio.
For starters, if you're buying a quality low-priced stock, you're getting high value for a discount. That's an obvious benefit.
There is also a not-so-obvious benefit…
Large institutional investors such as pension funds and some mutual funds are prohibited from buying stocks that trade below $5. As stocks slip below that price, analysts often stop covering the company due to a lack of interest from larger investors.
The lack of analyst coverage gives you a chance to buy before the stock comes to the attention of large institutional buyers. With cheap stocks, investors are less likely to be trading against the high frequency and short-term traders who need higher-priced, more liquid stocks to conduct their routine business.
Another note about cheap stocks: Hunting for cheap stocks to buy will often take investors to foreign companies' stocks trading in the United States.
Some investors avoid these shares – but you shouldn't. There are very profitable and affordable opportunities in this space. They can also offer a nice balance in your portfolio to shares of U.S. companies that haven't tapped into overseas economic growth.
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Using the widely available web-based stock screeners, an investor can quickly compile a list of international low-priced stocks that trade at discounted valuations and have outstanding long-term potential.
I put together a couple cheap stocks to buy now that are both under $5, are benefiting from economic recovery, and have more than 4% dividend yield…
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